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Week In Review

China

The Trump administration announced that it will implement 10% tariffs on $200 billion of imports from China through the end of this year. Starting in 2019 tariffs on these imports will rise to 25%. The administration also threatened to add tariffs to another $267 billion worth of imports if China retaliates. China responded with tariffs on $60 billion of imports from the U.S. China also unveiled plans to cut tariffs on imports from other trading partners.

Our Take

The trade conflict with China continues to escalate and to impact broader segments of the economy. The ultimate impact is likely to be stagflationary, and the trade conflict is a major threat to global growth. The trade conflict is also forcing the Chinese government to step back from its efforts to reduce leverage and financial risk in the Chinese economy.

Brexit

EU leaders flatly rejected May’s proposed Brexit deal at a summit in Salzburg and said that a special November summit to finalize a deal will only happen if May makes significant concessions at an October meeting. May responded that the EU needs to make counter-proposals and that the U.K. would proceed with a no-deal Brexit rather than an unacceptable deal.

Our Take

These developments increase the chances of a no-deal hard Brexit next March. The proposal that May brought to Salzburg already has her facing a potential challenge to her leadership at the upcoming Conservative party conference. It is difficult to see how May can develop a plan that will pass through Parliament in the U.K. and will be acceptable to the EU.

Municipals

Municipal bond new issuance is 10% lower this year compared to the same time period in 2017. Municipalities have issued $236 billion of bonds so far this year, according to Bloomberg. 2017 issuance reached $262 billion at this time last year.

Our Take

2018 new issuance will likely continue to be lower than last year’s issuance during the fourth quarter. State and local governments raced to market last December to beat potential tax law changes. Look for overall issuance in 2018 to be well below the 2017 level.